Recording of Transactions 2: Class 11 Accountancy NCERT Guide

Why We Need Subsidiary Books

In a business with numerous transactions, recording everything in a single General Journal is impractical. This is why the journal is subdivided into Special Purpose Subsidiary Books. Each book is designed to record a specific type of transaction. This method offers several advantages:

• Division of Work: Different accounting clerks can handle different books simultaneously, leading to faster and more efficient recording.
• Specialization and Efficiency: Repetitive recording by the same person increases their speed and accuracy.
• Easy Information Retrieval: If you want to see all credit sales, you just need to look at the Sales Book, instead of searching through a massive General Journal.
• Reduces Errors: Since each book handles one type of transaction, the chances of posting errors are minimized.

The main subsidiary books are:

1. Cash Book: For all cash and bank transactions.
2. Purchases Book (or Purchases Journal): For credit purchases of goods meant for resale.
3. Sales Book (or Sales Journal): For credit sales of goods.
4. Purchases Returns Book: For returning goods bought on credit.
5. Sales Returns Book: For goods returned by customers who bought on credit.
6. Journal Proper: For transactions that do not fit in any of the above books (e.g., opening entries, closing entries, purchase of assets on credit).

Key Terminology in Recording Transactions

Subsidiary Books

Also known as Special Purpose Journals or books of original entry, where transactions of a similar nature are recorded for the first time. Examples include the Cash Book and Purchases Book.

Cash Book

A special journal which records all cash receipts and cash payments. It serves the dual purpose of a book of original entry (journal) and a book of final entry (ledger).

Contra Entry

A transaction that affects both the cash and bank accounts, such as depositing cash into the bank or withdrawing cash from the bank for office use. It is recorded on both the debit and credit sides of a Double Column Cash Book and is denoted by 'C' in the Ledger Folio (L.F.) column.

Posting

The process of transferring the debits and credits from the journal or subsidiary books to their respective accounts in the ledger.

Journal Proper

The residual journal used for recording transactions that cannot be entered in any other subsidiary book, such as credit purchase of an asset or rectification entries.

Worked Example: Preparing a Double Column Cash Book

1. Step 1: Understand the Transactions — Analyse the following transactions for M/s Gupta Traders for April 2023: April 1: Cash in hand ₹15,000; Bank balance ₹50,000. April 5: Purchased goods for cash ₹7,000. April 10: Deposited cash into bank ₹10,000. April 15: Sold goods and received cheque ₹12,000. Cheque deposited same day. April 20: Withdrew from bank for office use ₹5,000. April 25: Paid rent by cheque ₹4,000.
2. Step 2: Prepare the Double Column Cash Book Format — Draw the format with columns for Date, Particulars, L.F., Cash (₹), Bank (₹) on both the Debit (Receipts) side and Credit (Payments) side. Double Column Cash Book of M/s Gupta Traders (Dr.) | Date | Particulars | L.F. | Cash (₹) | Bank (₹) | |----------|--------------------|------|----------|----------| (Cr.) | Date | Particulars | L.F. | Cash (₹) | Bank (₹) | |----------|--------------------|------|----------|----------|
3. Step 3: Record Each Transaction — Recording process and final book: April 1: Opening balances are recorded on the debit side. To Balance b/d with ₹15,000 in Cash column and ₹50,000 in Bank column. April 5: Cash is going out. Credit side. By Purchases A/c with ₹7,000 in Cash column. April 10: This is a Contra Entry. Bank is receiving, so debit Bank column with ₹10,000 (To Cash A/c). Cash is going out, so credit Cash column with ₹10,000 (By Bank A/c). Mark both with '(C)' in L.F. column. April 15: Bank is receiving money. Debit side. To Sales A/c with ₹12,000 in Bank column. April 20: This is another Contra Entry. Cash is received by office, so debit Cash column with ₹5,000 (To Bank A/c). Money is going out of bank, so credit Bank column with ₹5,000 (By Cash A/c). Mark both with '(C)'. April 25: Payment from bank. Credit side. By Rent A/c with ₹4,000 in Bank column. Final Cash Book: (Dr.) | Date | Particulars | L.F. | Cash (₹) | Bank (₹) | |-----------|------------------|------|----------|----------| | Apr 1 | To Balance b/d | | 15,000 | 50,000 | | Apr 10 | To Cash A/c | C | | 10,000 | | Apr 15 | To Sales A/c | | | 12,000 | | Apr 20 | To Bank A/c | C | 5,000 | | | Total | | | 20,000 | 72,000 | (Cr.) | Date | Particulars | L.F. | Cash (₹) | Bank (₹) | |-----------|------------------|------|----------|----------| | Apr 5 | By Purchases A/c | | 7,000 | | | Apr 10 | By Bank A/c | C | 10,000 | | | Apr 20 | By Cash A/c | C | | 5,000 | | Apr 25 | By Rent A/c | | | 4,000 | | Apr 30 | By Balance c/d | | 3,000 | 63,000 | | Total | | | 20,000 | 72,000 |
4. Step 4: Balance the Cash Book — Total the debit and credit columns for both Cash and Bank. The debit side will always be greater than or equal to the credit side for the Cash column. The difference is the closing balance (By Balance c/d). Cash: Debit Total (20,000) - Credit Total (17,000) = Closing Balance 3,000. Bank: Debit Total (72,000) - Credit Total (9,000) = Closing Balance 63,000. This closing balance becomes the opening balance (To Balance b/d) for the next month (May 1).

Exam Tips & Common Mistakes

Trade Discount vs. Cash Discount: This is a very common point of confusion.

• Trade Discount is given on the list price of goods. It is NOT recorded in the books of accounts. The entry is made for the net amount (List Price - Trade Discount). For example, goods of ₹10,000 sold at 10% trade discount will be recorded as a sale of ₹9,000.
• Cash Discount is offered for prompt payment. It IS recorded in the books. It's an expense for the seller and income for the buyer. It's handled in a Three-Column Cash Book or via a journal entry.

Key Traps to Avoid:

• Credit Purchase of an Asset: Do not record the purchase of a fixed asset (like furniture or machinery) on credit in the Purchases Book. The Purchases Book is ONLY for goods bought on credit for resale. Credit purchase of an asset goes into the Journal Proper.
• Contra Entries: Double-check that you have made both the debit and credit parts of a contra entry. A common mistake is to only post one side. Always write 'C' in the L.F. column for both entries.
• Cheque Received, Deposited Later: If a cheque is received on one date but deposited into the bank on a later date, DO NOT enter it in the bank column on the date of receipt. You can either pass no entry until deposit, or for better tracking, pass a journal entry debiting 'Cheques-in-Hand A/c'. When deposited, the entry is made in the cash book as To Cheques-in-Hand A/c in the bank column.

Practice Questions with Solutions

• Q: Prepare a Purchases Book from the following transactions of M/s. Electronics Hub for Jan 2023: - Jan 5: Bought from Sony India Pvt. Ltd. on credit: 10 LED TVs @ ₹25,000 each. - Jan 12: Purchased from LG Electronics on credit: 5 Refrigerators @ ₹30,000 each. (Trade Discount 10%) - Jan 20: Bought office furniture on credit from Modern Furnitures for ₹50,000. A: Step 1: Identify transactions to be recorded in the Purchases Book. Only credit purchases of goods are included. The purchase of office furniture is a credit purchase of an asset, so it will be excluded. Step 2: Calculate the net amount for each transaction. For the LG transaction, calculate the trade discount. - Sony India: 10 TVs ₹25,000 = ₹2,50,000 - LG Electronics: 5 Refrigerators ₹30,000 = ₹1,50,000. Less 10% Trade Discount (₹15,000) = ₹1,35,000. Step 3: Record the transactions in the Purchases Book format. Final answer: Purchases Book of M/s. Electronics Hub | Date | Invoice No. | Name of Supplier | L.F. | Amount (₹) | |----------|-------------|-----------------------|------|------------| | Jan 5 | | Sony India Pvt. Ltd. | | 2,50,000 | | Jan 12 | | LG Electronics | | 1,35,000 | | Total| | | | 3,85,000 | Note: The purchase of furniture on Jan 20 will be recorded in the Journal Proper, not the Purchases Book.
• Q: From the following, prepare a Sales Book of M/s. National Traders: - March 3: Sold to Gupta & Sons on credit: 50 shirts @ ₹800 each. - March 8: Sold old computer for cash to a student for ₹10,000. - March 15: Sold to Goyal Brothers on credit: 20 trousers @ ₹1,200 each, less 5% trade discount. A: Step 1: Identify transactions for the Sales Book. Only credit sales of goods are included. The cash sale of an old computer will be excluded (it goes in the Cash Book). Step 2: Calculate the net amount for each eligible transaction. For Goyal Brothers, apply the trade discount. - Gupta & Sons: 50 shirts ₹800 = ₹40,000 - Goyal Brothers: 20 trousers ₹1,200 = ₹24,000. Less 5% Trade Discount (₹1,200) = ₹22,800. Step 3: Record the transactions in the Sales Book format. Final answer: Sales Book of M/s. National Traders | Date | Invoice No. | Name of Customer | L.F. | Amount (₹) | |-----------|-------------|--------------------|------|------------| | Mar 3 | | Gupta & Sons | | 40,000 | | Mar 15 | | Goyal Brothers | | 22,800 | | Total | | | | 62,800 | Note: The cash sale on March 8 will be recorded in the Cash Book.
• Q: A transaction involves withdrawing cash from the bank for personal use. How is this recorded in a double-column cash book? A: Step 1: Analyze the transaction. 'Personal use' means it's a 'Drawings' transaction, not an office expense. The money is leaving the business's bank account and going to the owner personally. Step 2: Determine if it's a contra entry. It is NOT a contra entry because cash is not coming into the business's cash box. It is going to the owner. Step 3: Record the payment. Since the money is being paid out from the bank account, it will be recorded on the credit (payment) side of the cash book. Final answer: The transaction is recorded on the credit side of the Double Column Cash Book. The entry will be By Drawings A/c, and the amount will be entered in the Bank column.
• Q: On May 1, a business has a bank overdraft of ₹5,000. How will this be shown in the Double Column Cash Book? A: Step 1: Understand 'Bank Overdraft'. It is a liability, meaning the business owes money to the bank. It represents a negative or credit balance in the Bank Account. Step 2: Determine the correct side for recording. While normal balances (assets) are brought down on the debit side (To Balance b/d), a credit balance (liability) must be brought down on the credit side. Final answer: The bank overdraft of ₹5,000 will be recorded on the credit side of the Double Column Cash Book on May 1 as By Balance b/d in the Bank column.

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